Economy still growing, but slowly

By John Morrissy,
Courtesy: Canwest News Service 
 
 Canada's recession-weary economy is learning to crawl before it can walk again, eking out another month of tepid growth that nevertheless signals the worst is behind us, economists say.

The economy took another baby step forward in October -- following its 0.4 per cent advance in September -- with almost all industry sectors posting gains and combining to produce a monthly growth rate of 0.2 per cent, Statistics Canada reported Wednesday.

The data suggest "the recession is now well in the rear-view mirror," said CIBC World Markets economist Krishen Rangasamy.

Yet the results were also met with some disappointment, falling below consensus estimates of 0.3 per cent growth.

"This is a classic glass-half-full/half-empty report," said BMO Capital Markets deputy chief economist Douglas Porter.

"The half-full portion is that the economy has finally managed to churn out back-to-back growth months for the first time since late 2007, and is emerging from the recession. The half-empty portion is that the recovery remains lacklustre, at best, with GDP continuing to offer mostly surprises on the low side."

October's results are less comforting when viewed from the not-so-distant past.

In July 2008, at its peak, Canada's economy was churning out $1.24 trillion in goods and services, United Steelworkers economist Erin Weir said in a note. At the depths of the recession, in May 2009, that number fell to $1.18 trillion.

Now, "annualized output is $8 billion above the trough, but $50 billion below the peak.

"It increased by less than $2 billion in October. At that rate, it would take two more years simply to restore pre-crisis output."

Further, Weir added, "The main drivers of growth in October were apparently cold weather and low interest rates."

Utilities were responsible for all the growth in goods-producing industries, thanks to heavier demand for natural gas and electricity, while real-estate brokerages were the largest source of growth in the service sector, thanks to rock-bottom interest rates, he said.

"Neither a cold winter nor a hot real-estate market is a sustainable source of economic growth," Weir cautioned. "Canada has started to recover from the economic crisis, but the recovery's foundations are tenuous."

Nevertheless, despite its weakness, the economy is not expected to slip back into recession in the year ahead and the recovery, though modest, will continue to prevail, said Porter, who is calling for 2.5 per cent growth in 2010.

And 2009 appears set to close out with a fourth quarter that may surpass the Bank of Canada's target of 3.3 per cent annualized growth. Following Wednesday's data, TD Securities was calling for close to four per cent growth, while National Bank and CIBC were calling for four per cent.

Tyler Frederick

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